Chicken and Egg

It takes money to make money. If you're small, you have to get big before you can access the scalable back-office services you need to get big. You need to have scale in your business before you can afford to hire the employees who will give you the scale you need to ramp up. You have to have free time to make the efficiency changes that your office desperately needs, so you can have free time to work on your business and make efficiency changes.

Does any of this sound familiar? Running a financial planning practice takes you into a lot of chicken-and-egg situations, where it seems like you have to have something already before you can get access to it. But here's the good news: There are solutions for many of these blind alleys in your business growth.

For instance? When you decide to drop your licenses and become a full-time independent RIA or leave an established firm to go out on your own, you have to be able to put the new client assets you attract into the hands of a custodian. But if your AUM is under $10 million when you knock on the doors of the established back-office providers, they either turn you away or charge high rates for services that their other advisory affiliates are getting for free.

So how do you get started? One option few advisors know about is Shareholders Service Group in San Diego. SSG runs a custodial platform like larger competitors Schwab and TD Ameritrade, custodying assets for 900 RIA firms around the country. Some of those firms have more than $1 billion under management, but SSG has maintained a policy, since inception, of opening its doors to new advisors even if their AUM happens to be $0 million.

"We know that advisors don't go through the hassles of setting up an operation and registering if they're not serious about being in the business," says SSG CEO Peter Mangan. "So we don't think there is a lot of risk in taking advisors who are just starting out. In our experience, they tend to grow."

SSG gives the novice advisor full access to all of its systems, so you can open client accounts, manage assets, run billing and reporting just like the 20-partner firm down the street. The staff will also answer basic questions, like how to set up a compliance system or a CRM, and provides a database of outside vendors. Then you can piggyback on its omnibus contracts with Black Diamond, Allbridge and other reporting and software systems, essentially borrowing SSG's scale. These services, which normally would require a $15,000 annual commitment, are available for $100 a month for an advisor with few clients and a small number of trades.

Mangan says that it's just good business to help an advisor get up to speed in a hurry, because it means SSG participates in the growth. "It's not uncommon for an advisor to start out with zero assets and end up with $40 million to $50 million within two or three years," he says. This open-door policy also generates favorable word-of-mouth marketing. SSG achieved 25% growth last year in RIA relationships, mostly with established firms.

After you start out, and begin to attract clients, you hit another chicken-and-egg situation: You need to hire staff in order to free up your time from servicing existing accounts so you can bring in additional new business. But you don't have enough revenues to justify taking on a fixed cost that might exceed your current profits.

HIRING OFF-SITE HELP

Your best solution is to click on the Virtual Solutions For Advisors website's Virtual Staff tab. "You can hire a person on site at a $35,000 salary plus benefits and try to keep him busy every day, or you can hire a virtual assistant for $1,500 a month," says Jennifer Goldman, co-founder of the site. "You do the math. And when you outsource, you don't have to deal with emotions, sick leave and all that. You get a team of people vs. one person, at a fraction of the cost."

What can these off-site employees do around your office? On the Virtual Solutions site, you'll find a list of virtual receptionists. You forward your phone to a line at their office. When somebody calls, the receptionist answers with whatever script you choose: "Hello, you've reached Usually Reliable Financial Advisors; this is Susan. Can I help you?" If the caller asks for you, the virtual receptionist will route the call to your office. Callers can leave messages with the virtual employee or be routed to the voicemail system. To schedule an appointment, the receptionist will send the client to a calendar option installed on your website.

Or you can hire somebody to handle your bookkeeping. This person would keep track of your internal financials, pay vendors, invoice clients and give you weekly collection reports. Compliance? A company called Hill Financial Advisors will break down the responsibilities into monthly tasks and perform them to your specifications. Another company called Virtual Partners Group will handle office paperwork, including opening accounts, processing ACATS forms, wire requests and check requests.

In each case, you're hiring specialists who understand what you need right away, rather than employees who need training. You buy the virtual staff's time as needed, rather than permanently adding to fixed overhead costs. As your firm grows and you achieve more scale, it may make sense to bring on full-time staff - or you can choose to scale up how much you use your virtual staff.

Another common chicken-and-egg situation comes later on, when you have a few staff members, then a few more, and suddenly the comfortable intimacy of working closely with a small number of people turns into the chaos of trying to manage a full-blown organizational chart. Immediately, you need to institute systems and procedures, create workflows, install a paperless system to make it easy to find the paperwork on a growing client base, bring in software to coordinate it all, train the staff on the new software - and, of course, this pressing need arrives conveniently when you don't have enough time to breathe, never mind develop office efficiency.

THE VIRTUAL CHIEF OPERATING OFFICER

The solution is to have somebody step in as a temporary chief operating officer - and the only option I know of right now is Goldman's. She is on the Virtual Solutions website, but can be reached directly at myvirtualcoo.com. Goldman has, in the past, run her own advisory firm, worked as the COO for two firms and helped set up operations and procedures while on staff at another, larger RIA. She now provides, remotely, the hands-on management of your office transition, getting procedures established, installing new computer systems and training staff. "The one thing I hear over and over is that people just don't have the time," she says. "Advisors always run out of time right when they need it the most."

The engagement generally starts with an evaluation. Goldman will talk to you and your staff, recommend a software suite and virtual staff members (if needed) and provide a breakdown of costs. Often, the first thing she recommends is that you outsource the daily portfolio downloading and reconciling, along with the quarterly reporting chores. "That moves the single biggest chunk of work out of the office immediately," she says, adding that costs usually end up lower than they were in-house.

After that, you and Goldman define how you want the office to operate. "Once they know what they want," she says, "we'll jump in and install it, move the data, work with vendors and train the staff." Eventually she steps out of your cost structure, handing you a working office system to the specifications you set at the beginning.

Virtual employees work best when you're storing your data and key software systems on the cloud, and Goldman admits she has a bias for hosting everything there. "As your firm grows, it gets more complicated to manage the software, hardware, storage and everything else in-house," she says. "Why not let the experts handle it?" The cloud becomes another outsource option.

Alas, I still can't tell you whether the chicken or egg came first. But if you're faced with a seemingly unsolvable business dilemma where the only apparent solution is to get more of something you don't have, don't despair. By tapping little-known service providers, you can step around obstacles that would have stopped advisors in their tracks just a few years ago - and maybe get more efficient and productive in the process.

Bob Veres, a Financial Planning columnist, writes and publishes the Inside Information service for financial planners at bobveres.com.